Forest Laboratories to cut 9% of workforce

JonathanD. Rockoff

Forest Laboratories Inc. is cutting 500 jobs, or 9% of its workforce, as part of plan to eliminate $500 million in costs by 2016, the company's chief executive said Monday.

Brent Saunders, named CEO in September, said the cuts will eliminate some jobs in early-stage research, an area other drug companies also have been targeting for reduction.

Mr. Saunders said he wants to reduce Forest's R&D spending to the industry average of 15% of sales, from 30% of sales currently.

He said sales jobs and late-stage R&D will be spared, noting that the company aims to focus on drug development, not drug discovery.

Earlier Monday, the company publicly announced plans for $500 million in cost-cutting, but didn't provide details on specific job cuts.

The cost cuts were one of three announcements the company made as it tries to boost its prospects to overcome an aging portfolio of products.

Forest also said it would buy back $400 million in shares by the end of the year, using the proceeds of a $1 billion debt offering.

Mr. Saunders said the company plans to use the $600 million remaining after stock repurchases to buy more drugs to fill out the company's offerings in gastrointestinal disorders, cardiovascular disease and hospital infections. "It would give us a full portfolio of products," Mr. Saunders said.

He said that the company plans to buy the U.S. rights to the Saphris schizophrenia treatment from Merck & Co. for $240 million upfront, plus additional payments if the drug meets certain sales targets.

Forest shares rose 9.8% at $56.32 in New York Stock Exchange trading Monday.

New York-based Forest has been struggling to overcome generic competition to its drugs, including the blockbuster antidepressant Lexapro, which lost U.S. patent protection last year.

Launches of some new drugs haven't met expectations on Wall Street, and the U.S. Food and Drug Administration last month delayed an approval decision on a schizophrenia treatment, cariprazine, that Forest is helping develop.

Merck and Eisai Co. Ltd. also recently announced job and other cuts, especially in their laboratories.

Forest said the job cuts will save the company $110 million, while reductions in marketing expenses will save another $150 million.

The company said the remaining savings would come from cuts in general, administrative and other expenses. Forest said it hopes to achieve 60% to 75% of the cost savings by 2015.

During the fiscal year ended March 31, Forest recorded $3.1 billion in total revenue, while spending $963.6 million on research and development.

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